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What a difference a day makes when you don't pay a premium

A policyholder involved in a car crash turned out not to be covered. Picture: MARK STOKOE/NETCARE 911

Fifteen days. That's how long you have to pay an overdue insurance premium in order to avoid having a claim rejected.

Policyholder protection rules oblige insurers to give their policyholders a 15-day grace period between an unpaid debit order and the lapsing of the policy or the rejection of a claim.

But does that mean a policy lapses on the 15th or the 16th day?

That was the question posed by King Price client "Mr M", as reported in the ombudsman for short-term insurance's latest "Briefcase" newsletter.

That interpretation proved to be the difference between his claim being accepted or rejected after he was involved in a car crash on October 8 last year.

His premium was due on October 4, four days before the accident, but the debit order was returned unpaid. A second debit order was submitted 15 days later, on October 19, which also failed, with the result that Mr M's claim relating to the crash was rejected.

In his subsequent complaint to the ombudsman, Mr M argued that he'd only been given a 14-day grace period, and that had King Price submitted the second debit order a day later, giving him the full 15 days rather than resubmitting that debit order on the 15th day, there would have been funds in this account.

But King Price maintained that it had complied with the policyholder protection rules, which state: "An insurer shall ensure that a policy contains a provision for a period of grace for the payment of premiums of not less than 15 days after the relevant due date."

The ombudsman sided with the insurer.

The 15-day grace period afforded the insured a second opportunity within which to make payment of a premium and was "a period of time beyond a date during which a financial obligation may be met without penalty or cancellation", the ombudsman said.

"Thus, in the event that the insured fails to make payment of the premium on expiry of this period - that is, by, and not after, day 15 - punitive action can be taken against him or her on day 16."

In short, if insurers reserve, in their policy, the minimum grace period of 15 days for a second payment to be made, as King Price does, they are entitled to submit a second debit order on day 15.

"The insurer may, of course, submit a debit earlier than day 15 but it will not be entitled to take any punitive action against the insured until the expiry of the 15 days," the ombudsman said.